After stunning debut, India's anti-graft party scrambles to dispel doubts

GHAZIABAD, India Jan 31 Anti-corruption
crusader Arvind Kejriwal has shaken up India's political
landscape with promises to change a rotten system: Now he is
scrambling to dispel fears that his populism and rabble rousing
could be a liability for Asia's third-largest economy.

Barely a year after founding the Aam Aadmi - or Common Man -
Party (AAP), the former tax collector made a stunning debut in
Delhi legislative elections last month, crushing the ruling
Congress party and preventing the Hindu nationalist Bharatiya
Janata Party (BJP) from taking control of the city.

As India heads to a general election due by May, Kejriwal -
now chief minister of the country's capital - is preparing to
wrongfoot the mainstream parties on a much larger scale.

If he succeeds, the implications could be profound. He could
derail the ambition of BJP figurehead Narendra Modi to become
prime minister, and possibly even hold the key to power in
post-election manoeuvring to form a coalition government.

The trouble for Kejriwal is that many doubt he can make the
leap from populism and street politics to policies that would
lift India's economic growth from its slowest clip in a decade.

In his first weeks in office, he slashed power and water
prices, banned foreign supermarkets from setting up in the
capital and led an unruly protest against the police.

"We will need time to see what policies they establish in a
national manifesto," said Natasha Ebtehadj, a fund manager at
Threadneedle Investments in London. "However, initial moves do
seem to suggest that they will not be prioritising economic
reform nor reducing the reliance on unproductive subsidies."

In an interview, Kejriwal spelled out his economic
priorities for the first time and said AAP would spur
competition, simplify tax, reduce the role of government and
make space for entrepreneurship to flourish.

"We have somehow put shackles on private enterprise, this
needs to be removed. People need to be allowed to do business,"
he said at his cluttered apartment in Ghaziabad, a shabby
satellite town of New Delhi far from the elegant streets
preferred by most politicians in the heart of the capital.

CORPORATE LEADERS AND NOTED ECONOMISTS

The AAP's appeal is broad. Leaders from Apple Inc,
Barclay's Capital and software services giant
Infosys Ltd have all joined what they see as a
revolution against the bribes and graft that are holding India
back.

To convince investors it is a serious player, the AAP has
set up a seven-member committee to forge a policy manifesto,
including former RBS India CEO Meera Sanyal, former Idea
Cellular Managing Director Sanjeev Aga and noted
economists.

That platform is likely to seek foreign direct investment
(FDI) in infrastructure and financial services, favour a
nationwide goods and services tax to cut business costs and
bring in a uniform taxation regime, two sources with direct
knowledge of the policy discussions said.

"We are not against FDI per se, we are not saying that FDI
should not be in any sector, this is a decision that has to be
taken on a sector by sector basis," Kejriwal said.

The party would not oppose partial privatisations, and it
may suggest a roadmap to plug leakages in the delivery of
subsidised grain, fuel and fertiliser, the sources said.

Kejriwal is opposed, however, to the entrance of foreign
supermarket chains such as Wal-Mart into India, arguing
it would be damaging for local jobs and farmers. The Indian
government has allowed entry of foreign retailers into the
country but has left it to state governments to implement the
policy.

Kejriwal returned time and again in the interview to his
mantra, fighting the rampant graft that sparked unprecedented
protests and hunger strikes in 2011 and led to the creation of
his party.

"Good economics is the outcome of honest politics," he said.

India was ranked 94th in a list of 177 countries on
Transparency International's 2013 global corruption index, lower
than China, South Africa and Brazil. The Congress party-led
government has been rocked by spectacular corruption scandals,
and foreign investors regularly complain about the need for
"speed money" to get business done in the country.

One of Kejriwal's first actions in government was to
encourage citizens to use cellphones to record government
workers who demand bribes, then call a hotline to report them.
Businesses in Delhi say the effect has been dramatic, with far
fewer demands for gifts and money.

BEDDING DOWN BY THE BARRICADES

Kejriwal's AAP clearly has strong support in Delhi, but it
is unclear how far its popularity extends.

Some supporters may have had second thoughts in recent days
after the spectacle of Kejriwal leading a street protest against
the city police, who are controlled by the federal government,
and bedding down for the night beside the barricades.

In the national election, AAP would field candidates against
73 members of parliament facing serious criminal charges and
also stand against several cabinet ministers who had "engaged in
corruption", Kejriwal said.

Some leaders have said the party is preparing to contest up
to 400 of the 543 parliamentary seats at stake, though opinion
polls conducted since the Delhi election suggest that - despite
such ambitions - it is unlikely to win more than a dozen.

Nevertheless, support for the AAP across the country could
yet grow, putting the party in a key and influential position
if, as polls predict, there is a hung parliament and a coalition
government has to be formed.

Kejriwal said he is opposed to both the Congress and the
BJP, but has accepted support from Congress in forming the
government in Delhi.

The AAP's meteoric rise has already forced the main parties
to adopt some of its anti-elite, anti-corruption language. Its
crowd-pleasing Delhi policies have had a knock-on effect, with
two states following Kejriwal's cut in electricity prices. On
Thursday, the Indian government increased subisides for domestic
cooking gas, a move apparently aimed at AAP's core support base
of urban voters.

G.R. Gopinath, an entrepreneur who founded India's first
low-cost airline and recently joined the AAP, wrote in a blog
that the party's rowdy edge could however erode support among
the educated middle class whose funds and motivation helped it
win in Delhi.

"AAP is in danger of being branded like other political
parties of resorting to cheap and populist measures and opposing
for the sake of opposing," he said.

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